Why a Greek Debt Deal Won’t End the Greek Saga

For months, the situation in Greece has dominated European markets for days on end as a new deadline approaches.

Anne-christine Poujoulat

A man holds a placard bearing the Greek flag.

The latest is Thursday evening’s deadline for enough of the troubled country’s private sector creditors to accept the bond swap offer that’s a key part of its latest bailout.

Those private sector creditors have until 3 p.m. New York time (8 p.m. GMT) on Thursday to decide whether to accept the deal. The Greek government is expected to announce the full tally on how many creditors accepted the offer at 1 a.m. New York time Friday (6 a.m. GMT).

If the deal is passed, a temporary sigh of relief is likely from markets – but Greece will not move far from the markets’ agenda.

The next big date will be the Greek elections, expected in early May, according to Thanos Vamvakidis, head of European G10 currency strategy, BofA Merrill Lynch Global Research.

Even if a private-sector debt deal is passed, “the market will get very concerned about the Greek elections,” he told CNBC Thursday.

Latest polls – described by Vamvakidis as “scary” – suggest that the two main political parties, left-wing Pasok, which won the last election, and conservative New Democracy, currently command less than 40 percent of the vote between them.

Greece is currently being ruled by a technocratic government, headed by Lucas Papademos, after Pasok leader George Papandreou stepped down last year.

While both Pasok and New Democracy have given written evidence of their commitment to Greece’s second bailout deal, which imposes stringent austerity measures on a country already battling with recessionand 20 percent unemployment, parties further removed from the political center have not.

That raises the possibility, Vamvakidis said, that a new government may rise to power by promising to renegotiate the unpopular austerity package.

“The best case scenario is a very weak coalition government which will be very vulnerable after any difficult vote,” Vamvakidis said. “They might not agree on a government and need another election. You could have the scenario where leftist parties form a coalition.”

The potential for Greece to default on its debt repayments – and possibly even leave the single currency – could be raised by a new government, analysts believe.

“We continue to think Greece may default further down the line and perhaps leave the euro too, triggering fresh upheaval in the financial markets,” analysts at Capital Economics wrote in a research note. “The outcome of upcoming elections in Greece could be a particularly important ‘flash’ point if it prompts whoever is then in charge to renegotiate the terms of the second bail-out.”

The bailout money that’s been given to Greece by the International Monetary Fund, European Central Bank and European Commission--while essential to servicing Greece’s debt--is not going into any economic stimulus for the country’s ailing economy.

“A lot of this is money in, money out. Greeks see it being whipped past their nose to other foreigners,” Nick Carn, founder of Carn Macro Advisors, told CNBC.

And while the wrangling between Greece and its creditors continue, the plight of the Greek people continues. Many of those with money are moving it out of the country.

Greece has also failed so far to attract foreign investment, unlike fellow bailout nation Ireland, which has seen a boost to its employment rate.

“To a large extent, the recession is getting deeper because of uncertainty about the end game,” Vamvakidis said. “In the best case scenario, the [private sector debt deal] just buys time.”